The eco calendar remains quite uneventful today

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Yesterday, global core bonds firmed a little bit, following two days of correction. During the European session, renewed weakness of equities was a supportive factor, but when US equities moved higher, core bonds held up well. The front end of the curve outperformed the longer end, but daily yield declines were modest between -2 and -0.2 bps, with no noticeable difference between US and German yields. There were no eco data releases of interest.
The ECB started buying covered bonds (French banks according to speculation) and the Bundesbank said it expects Q3 GDP to be in line with Q2 (-0.2% Q/Q) or slightly higher. Dallas Fed fisher said he still wants to end QE3 this month, but on the timing of a first rate hike, he was more cautious than usual, saying that lift-off date will be determined by how the economy performs. On intra-EMU bond markets, volatility increased again. Spreads widened by 1 to 3 bps in the core, but PIIGS spreads increased by 10 to 24 bps.

The eco calendar remains quite uneventful today with only the euro zone 2013 government debt to GDP ratio’s and US existing home sales. The earnings season remains in full swing (see calendar) and Finland (Bonds), Norway (Bonds), the UK ( Gilts) and ESM (T-Bills) tap the market.

The EMU 2013 government debt to GDP data are published under the new methodology, which might be interesting, but they are quite outdated and therefore less interesting for markets. In 2012, euro zone debt to GDP jumped to 92.6% and further increase is likely, although there is some uncertainty regarding the new methodology. In the US, existing home sales are forecast to have increased slightly in September following a decline in August. Existing home sales are expected to have increased by 1.0% M/M to 5.10 million. We believe that the risks are for an upward surprise after positive developments in pending home sales recently and as inventories have picked up somewhat.

The Republic of Finland holds its first tap auction since the one-notch S&P downgrade two weeks ago. The Finnish treasury taps the on the run 15-yr RFGB (2.75% Jul2028) for €1B. In the run-up to the auction, the bond cheapened around 3 bps in ASW-spreads. The bond is also around 3 bps cheaper than the longest outstanding Finnish maturity (2.625% Jul2042) and offers a pick-up against other core debt (Germany/Netherlands/Austria). Overall, we believe the auction will be plain vanilla. Currently, Finland raised slightly north of 75% of this year’s funding need. The auction is most likely the second to last for this year. There are also rumours that Ireland would announce a new synd. deal.

The ECB holds its weekly MRO tender. Last week, 132 banks asked for €82.5B of liquidity. Since the low take-up at the first TLTRO, allotted amounts at the MRO’s remained rather low as well. Tonight we’ll report on the outcome and implications for eonia and excess liquidity (currently €108B). Eonia still has negative fixings, close to zero.

Overnight, Asian equities trade flat to lower despite WS’s strong performance and better than expected Apple earnings. Japanese stocks underperform on the back of a weaker yen. Chinese stocks couldn’t hold on to gains despite mixed to better data (marginally weaker retail sales, better IP data, slightly higher GDP). According to the Minutes, the RBA sees a period of rate stability and still thinks that Aussie dollar is too high. The US Note future is significantly higher, suggesting a higher Bund opening too.

Today, the eco calendar remains extremely thin. Therefore, we could see an extension of yesterday’s slow start of bond trading. Eco data are second tier and central bank speakers absent. Q3 earnings remain a wildcard (Coca Cola, Mc Donalds, Verizon). Yahoo only releases results after market. Equity market sentiment remains important. Last week, dark expectations about the global economy/inflation and fears that monetary policy reached its limits increased market volatility. European/US equities fell below key support levels and couldn’t regain these technical levels (1904 for S&P 8900/9000 for Dax). The S&P tested this zone yesterday but a break didn’t occur. Despite WS’s good performance, the US Note future still drifted higher. Core bonds profit from weak equity markets whereas this relationship isn’t very strong in the opposite direction. On intra-EMU bond markets, volatility increased as well of late. Risk-off sessions trigger large corrections higher. Cautiousness is warranted. The technical picture is still bullish for bonds. For the German Bund, the uptrend line since June gives support at 150.37.